Agreement reached on failed bank bailout

Austrian Finance Minister Hans Joerg Schelling said Wednesday an agreement in principle had been reached with the stricken Hypo bank's creditors that had threatened to bankrupt the state of Carinthia.

Agreement reached on failed bank bailout
Hypo Group Alpe Adria headquarters. Photo: HGAA Website

“We're drawing a definitive line under the Hypo affair” the minister told journalists, referring to state bank Hypo Group Alpe Adria (HGAA), which has saddled Carinthia with 11 billion euros in debt.

The deal will see creditors receive 75 percent of the face value of the HGAA bonds they own. They will be offered to buy that value of Austrian government bonds at 75 percent face value.

The proposal is better than the one creditors rejected in March as the Austrian government bonds mature in 13 instead of 18 years.

Schelling said an agreement in principle has been signed with a portion of creditors and compensation could be launched in September.

The creditors include Germany's Commerzbank and a Dexia unit, according to Bloomberg.

The saga is a legacy of late Austrian far-right political Joerg Haider, formerly premier of Carinthia, who died in 2008.

Under Haider, HGAA expanded into the Balkans as well as Italy and Germany via acquisitions and risky investments, expanding its balance sheet fourfold to some 40 billion euros.

Bavaria's state lender BayernLB bought a majority stake in 2007 in HGAA but two years later, as the global financial crisis raged, the bank came close to collapse and Austria nationalised it.

After a long and bitter dispute, Austria finally agreed last November to pay Bavaria 1.23 billion euros to put an end to the feud.

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Austria moves to settle Heta cases with Bavaria

Austria has offered to pay Bavaria at least €1.23 billion ($1.36 billion) to settle multiple court cases relating to its "bad bank" Heta.

Austria moves to settle Heta cases with Bavaria
ypo Alpe Adria headquarters in Klagenfurt. Photo: JJ55/Wikimedia

The deal could end years of dispute between the two countries – dating back to 2007 when Bavarian bank BayernLB bought Hypo Alpe Adria, which was nationalised by Austria two years later.

“It's a step in the direction of a settlement,” Chancellor Werner Faymann said on Tuesday, adding that a deal could be done by September.

The €1.23 billion represents 45 percent of Bavaria's claims, and Vice-Chancellor Reinhold Mitterlehner said Austria would add 45 percent of any gains Heta might make in future.

The failure of Hypo Alpe Adria sparked multiple lawsuits in Austria and Germany with claims and counter-claims amounting to about €16 billion.

Hypo Alpe nearly collapsed over bad loans in the former Yugoslavia.

After €5.5 billion of state aid and growing public discontent, Austria’s government halted further support for the bank in March.

Heta is the first European bank to be wound down under the EU’s Bank Recovery and Resolution Directive, a new law designed to protect taxpayers from the cost of bank failures.

The main investors in Heta’s bonds are German state-owned banks, mortgage banks and insurers.

Heta said in a statement it welcomed the negotiations, in which it was not involved.